I’ve become obsessed with what it takes to create excess cash in a business. I learned a long time ago from personal experience that without excess cash the only thing you’re ever going to be thinking about is “How do I create more cash in my business?”.
You might want to know about the four absolutes I’ve learned about cash and having enough of it in my business. If so, watch this short video to find out.
I’ve become obsessed with what it takes to create excess cash in a business. I learned a long time ago from personal experience that without excess cash the only thing you’re ever going to be thinking about is “How do I create more cash in my business?”. I can also tell you that when this happens, all of the good things that can happen in your business just go out the window and the only thing that matters is having enough cash to run your business.
You might be asking yourself how I could possibly know this is true. The unfortunate truth for me is I’ve been close to completely running out of money and having to close the doors of my businesses more then once. Luckily, I never did have to declare bankruptcy. But, I did have lots of sleepless nights and for long periods of time I stopped focusing on what would have made my business better and I had to focus on one thing and only one thing only, which was how do I get enough cash in my business. Having the phone ring, suppliers call, people knowing in your business in fact, that you’re short on cash is a really, really bad thing.
Because of these not so fun experiences, I thought you might want to know about the four absolutes I’ve learned about cash and having enough of it in my business.
Hi, I’m Josh Patrick the founder of Stage 2 Planning Partners and the Sustainable Business. I also am the one who’s responsible for putting together our Cracking the Cash Flow Code Program, and I’m also the author of Sustainable: A Fable About Creating a Personally and Economically Sustainable Business.
So, here are my four things.
- Number one, and this is really, really important. You have to have a predictive dashboard in your business. Now what is a predictive dashboard in your business? A predictive dashboard is a bunch of numbers that are gonna tell you about what’s going to be happening in your business in the future.
For example, do you have a service business, or do you have a manufacturing business? And in that business do you know what your backlog is? And is your backlog increasing, or is your backlog going down? If your backlog is going down there’s a pretty good chance that 60 to 90 days out you’re gonna have less cash in your business then you do today. If your backlog is going up, there’s a pretty good chance you’re gonna have more cash in your business then you do today.
- The second thing I want you to do, you really need to first put together a cash flow statement on a monthly basis, and you need to learn how to read it. Now, what I have found is that almost no businesses I ever run across have a cash flow statement, and even if they do have a cash flow statement the owner looks at it, shrugs their shoulders and says, too complicated for me to learn how to do.
What a cash flow statement does, it tells you what happens to the different components that create or use cash in your business. Did you buy equipment? Is you inventory going up or down? Are your receivables going up or down? All those things lead to whether you’re gonna have more cash, or less cash, and understanding those moving parts in your business is a must if you don’t want to run out of cash.
- Number three, do you have a system for creating new cash coming in? And what I mean by this is, does your business have a recurring revenue strategy? If it doesn’t have a recurring revenue strategy you need to put one in place, and I really mean, you need to put one in place.
Now if your business doesn’t have natural recurring revenue you need to make that recurring revenue into a predictable sales process that brings new customers in the door and has that money flowing down through your company, through a predictable methodology of creating new customers.
- And the fourth and final thing, this is a big deal and almost no businesses have it, do you have an emergency fund? I don’t care how good all the other three things are in your company, there are going to be periods where things are just out of your control and you’re gonna have a problem with cash.
So if you don’t have an emergency fund you’re gonna have to turn to the banks, you’re gonna have to turn to your credit cards. You’re gonna have to go some place to get enough cash to keep the doors of your business open. And the thing I can promise you about when you’re trying to go to a bank when you actually need money, they’re gonna say no.
Now banks are not in the business of lending risky loans, and making risky loans. What they are in the business of doing is loaning money to people they are sure they’re gonna be able to return and get that money back from.
So now you have my list of things that you absolutely need to do, what’s your list?
Why don’t you let me know in the comments below, and while you’re at it, DOWNLOAD our Free Infographic on Cracking The Cash Flow Code.
This is Josh Patrick and you’re at the Sustainable Business. I hope to see you back here really soon.